SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1996
Commission File Number 0-14798
AMERICAN WOODMARK CORPORATION
(Exact name of the registrant as specified in its charter)
VIRGINIA 54-1138147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 Shawnee Drive, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (540) 665-9100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock (no par value)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's Common Stock, no par value,
held by non-affiliates of the registrant at April 30, 1996 was $12,804,306 based
on the closing price on that date on the NASDAQ Exchange.
As of June 28, 1996, 7,632,081 shares of the Registrant's Common Stock were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
April 30, 1996 are incorporated by reference into Parts I and II of this
Form 10-K.
Portions of the Proxy Statement for the Annual Meeting of the Stockholders
to be held on August 20, 1996 are incorporated by reference into Part III of
this Form 10-K.
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PART I
Item 1. BUSINESS
American Woodmark Corporation manufactures and distributes kitchen
cabinets and vanities for the remodeling and new home construction
markets. The Company was formed in 1980 by the four principal
managers of the Boise Cascade Cabinet Division through a leveraged
buyout of that division. The Company was operated privately until
1986 when it became a public company through a Common Stock
offering.
The Company currently offers framed stock cabinets in almost 100
different cabinet lines, ranging in price from relatively
inexpensive to medium priced styles. Styles vary by design and
color from natural wood finishes to low-pressure laminate surfaces.
The entire product offering includes thirty-three door designs and
five colors. Stock cabinets consist of a common box with standard
interior components and an oak, cherry or maple front frame.
The Company's products are sold under the brand names of American
Woodmark(R), Crestwood(R), Timberlake(TM), Scots Pride(TM), and
Coventry and Case(TM) cabinets.
American Woodmark's products are sold on a national basis via three
market channels: independent dealer/distributors, home centers, and
major builders. It is estimated that 60% of sales during the fiscal
year ended April 30, 1996 were to the remodeling market and 40% to
the new home market. Products are distributed to each market
channel directly from the Company's three assembly plants and
through a logistics network consisting of four service centers
located in key areas throughout the United States.
The primary raw materials used by the Company are oak and maple
lumber, paint, particle board, manufactured components, and
hardware. The Company currently purchases paint from one supplier;
however, other sources are available. Oak and maple lumber,
particle board, manufactured components, and hardware are purchased
from more than one source and are readily available.
The Company operates in a highly fragmented industry which is
composed of several thousand local, regional and national
manufacturers. The Company believes that no other company in the
industry has more than a 15% share of the market. The Company also
believes that American Woodmark is one of the five largest
manufacturers of kitchen cabinets in the United States.
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The Company's business has historically been subjected to seasonal
influences, with higher sales typically realized in the second and
fourth fiscal quarters. General economic forces and changes in the
Company's customer mix have reduced seasonal fluctuations in the
Company's revenue over the past few years.
In the fiscal year ended April 30, 1996, the Company had two
customers, Builders Square, Inc., a subsidiary of K-mart
Corporation, and The Home Depot, who each accounted for in excess of
10% of the Company's sales.
At April 30, 1996, the Company had 2,164 employees. Approximately
30% of its employees are represented by labor unions. Management
believes its employee relations are excellent.
Item 2. PROPERTIES
The Company leases its Corporate Office which is located in
Winchester, Virginia. In addition, the Company leases one and owns
six manufacturing facilities located primarily in the eastern United
States. The Company also leases four service centers located
throughout the United States which support the distribution of
products to each market channel.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various suits and claims in the normal
course of business. Included therein are claims against the Company
pending before the Equal Employment Opportunity Commission.
Although management believes that such claims are without merit and
intends to vigorously contest them, the ultimate outcome of these
matters cannot be determined at this time. In the opinion of
management, after consultation with counsel, the ultimate
liabilities and losses, if any, that may result from suits and
claims involving the Company will not have a material adverse effect
on the Company's results of operations or financial position.
The Company is voluntarily participating with a group of companies
which is cleaning up a waste facility site at the direction of a
state environmental authority. The Company is also involved in
other matters under the direction of state environmental
authorities.
The Company records liabilities for all probable and reasonably
estimable loss contingencies on an undiscounted basis. For loss
contingencies related to environmental matters, liabilities are
based on the Company's proportional share of the contamination
obligation of a site since management believes it "probable" that
the other parties, which are financially solvent, will fulfill their
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proportional contamination obligations. There are no probable
insurance or other indemnification receivables recorded. The
Company has accrued for all known environmental remediation costs
which are probable and can be reasonably estimated, and such amounts
are not material. Due to factors such as the continuing evolution
of environmental laws and regulatory requirements, technological
changes, and the allocation of costs among potentially responsible
parties, estimation of future remediation costs is necessarily
imprecise. It is possible that the ultimate cost, which cannot be
determined at this time, could exceed the Company's recorded
liability. As a result, charges to income for environmental
liabilities could have a material effect on results of operations in
a particular quarter or year as assessments and remediation efforts
proceed. However, management is not aware of any matters which
would be expected to have a material adverse effect on the Company's
results of operations or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
"Market Information" in the American Woodmark Corporation's 1996
Annual Report to Stockholders ("1996 Annual Report") is incorporated
herein by reference.
The Company's primary loan agreement prohibits the payment of cash
dividends. The Company has not paid cash dividends on its Common
Stock since its inception.
Item 6. SELECTED FINANCIAL DATA
"Five Year Selected Financial Information" in the 1996 Annual Report
is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" in the 1996 Annual Report is
incorporated herein by reference.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements, "Quarterly Results of Operations," and
the Report of Ernst & Young LLP, Independent Auditors, in the 1996
Annual Report are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the directors and nominees for
directorships, see the information under the caption "Election of
Directors" in the Registrant's Proxy Statement ("Proxy Statement")
for the Annual Meeting of Stockholders to be held on August 20,
1996, which information is incorporated herein by reference.
The executive officers of the Registrant as of April 30, 1996 are as
follows:
Name Age Position Held During Past Five Years
---------------------- --- -------------------------------------
William F. Brandt, Jr. 50 Chairman and Chief Executive Officer
since November, 1995
Chairman and President 1980-1995
James J. Gosa 48 President and Chief Operating Officer
since November, 1995
Executive Vice President 1993-1995
Vice President, Sales and Marketing
1991-1993
Vice President, Marketing and Branch
Operations
Thomas Somerville Co. 1985-1991
Director since 1995
Kent B. Guichard 40 Vice President, Finance and Chief
Financial Officer since November 1995
Vice President, Finance 1993-1995
Vice President & Controller, AM
Graphics Division, AM International
1991-1993
Controller, Aircraft Wheel and Brake
Operations, BF Goodrich Company 1989-
1991
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David L. Blount 48 Vice President, Manufacturing since
May, 1995
Vice President, Component
Manufacturing 1994-1995
Vice President, Manufacturing 1983-1994
For information concerning Item 405, disclosure of delinquent filers, see
the information under the caption, "Election of Directors" in the Proxy
Statement, which information is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The "Compensation of Executive Officers" segment in the Proxy
Statement is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The "Principal Shareholders of the Company" segment in the Proxy
Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions"
in the Proxy Statement is incorporated herein by reference.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Financial Statements of American Woodmark
Corporation are incorporated by reference in Item 8:
Balance Sheet - April 30, 1996 and 1995
Statement of Income and Retained Earnings - for
each of the years in the three-year period ended
April 30, 1996
Statement of Cash Flows - for each of the years in
the three-year period ended April 30, 1996
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
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(a) 2. Financial Statement Schedules
The following Financial Statement schedule is included in
a separate section of this report:
Schedule Page
-------------------------------------- ----
II. Valuation and qualifying accounts S-1
All other schedules for which provisions are made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(a) 3. Exhibits
Exhibit No. Description
- ----------- --------------------------------------------------------------
3.1 - Articles of Incorporation as amended effective August 12, 1987
(3)
3.2 (a) - Bylaws (1)
3.2 (b) - Amendment to Bylaws on June 22, 1994 (7)
4 - Amended and Restated Stockholders' Agreement (1)
9 - Voting Trust Agreement (1)
10.1 (a) - Amended and Restated Loan Agreement between the Company and
NationsBank of North Carolina as of March 23, 1992 (5)
10.1 (b) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of September 8, 1992 (6)
10.1 (c) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of June 25, 1993 (6)
10.1 (d) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of March 15, 1993 (6)
10.1 (e) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of August 31, 1993 (7)
10.1 (f) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of March 15, 1994 (7)
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10.1 (g) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of July 27, 1994 (8)
10.2 (a) - Security Agreement between the Company and NationsBank of
North Carolina as of March 23, 1992 (5)
10.2 (b) - Amendment to Security Agreement as of August 31, 1993 (7)
10.3 (a) - Bond Purchase Agreement Sale - Orange, Virginia (1)
10.3 (b) - Bond Purchase Agreement and Agreement of Sale - Orange,
Virginia (1)
10.3 (c) - Bond Purchase Agreement and Agreement of Sale - The Industrial
Development Authority of the County of Mohave, Arizona (2)
10.3 (d) - Bond Purchase Agreement and Agreement of Sales - Stephens
County Development Authority (3)
10.3 (e) - Amendment of Bond Purchase Agreement and Agreement of Sale -
Orange, Virginia (4)
10.3 (f) - Loan Agreement between the Company and the County Commission
of Hardy County, West Virginia as of December 1, 1991,
relating to bond financing (5)
10.3 (g) - Promissory Note between the Company and County Commission of
Hardy County, West Virginia as of December 18, 1991 (5)
10.3 (h) - Reimbursement Agreement between the Company and NationsBank as
of December 1, 1991 (5)
10.3 (i) - Amendment to Reimbursement Agreements as of June 15, 1992 (5)
10.4 (a) - Credit Line Deed of Trust and Security Agreement - Orange and
Clarke Counties, Virginia, as amended (1)
10.4 (b) - Deed of Trust and Security Agreement - Hardy County, West
Virginia, as amended (1)
10.5 (a) - Loan Agreement between the Company and the West Virginia
Economic Development Authority and the Hardy County Rural
Development Authority (1)
10.5 (b) - Security Agreement between the Company and the West Virginia
Economic Development Authority (1)
10.5 (c) - Deed of Trust - Hardy County, West Virginia (1)
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10.6 (a) - Lease between the Company and Amwood Associates (1)
10.6 (b) - Lease between the Company and the West Virginia Industrial and
Trade Jobs Development Corporation (3)
10.6 (c) - Lease between the Company and the West Virginia Industrial and
Trade Jobs Development Corporation (3)
10.6 (d) - Amendment to Deed of Lease between the Company and West
Virginia Economic Development Authority as of March 30, 1992
(5)
10.7 (a) - 1986 Employee Stock Option Plan (1)
10.7 (b) - Form of Option Agreement and Stock Purchase Agreement (1)
10.7 (c) - 1990 Non-Employee Directors Stock Option Plan (7)
10.7 (d) - 1995 Non-Employee Directors Stock Option Plan
10.8 - 1996 Incentive Plan
11 - Computation of Earnings Per Share
13 - 1996 Annual Report to Stockholders
23 - Consent of Ernst & Young LLP, Independent Auditors
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
- -------------------------------------------------------------------------------
(1) - Incorporated by reference to exhibits filed with Form S-1, No.
33-6245.
(2) - Incorporated by reference to exhibits filed with the 1987 Form
10-K.
(3) - Incorporated by reference to exhibits filed with the 1988 Form
10-K.
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(4) - Incorporated by reference to exhibits filed with the 1989 Form
10-K.
(5) - Incorporated by reference to exhibits filed with the 1992 Form
10-K.
(6) - Incorporated by reference to exhibits filed with the 1993 Form
10-K.
(7) - Incorporated by reference to exhibits filed with the 1994 Form
10-K.
(8) - Incorporated by reference to exhibits filed with the 1995 Form
10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
American Woodmark Corporation
(Registrant)
/s/ WILLIAM F. BRANDT, JR.
William F. Brandt, Jr.
Chief Executive Officer
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ JAMES J. GOSA /s/ JOHN T. GERLACH
James. J. Gosa John T. Gerlach
President and Chief Operating Director
Officer
Director
/s/ KENT B. GUICHARD /s/ RICHARD A. GRABER
Kent B. Guichard Richard A. Graber
Vice President, Finance and Director
Chief Financial Officer
/s/ DANIEL T. CARROLL /s/ DONALD P. MATHIAS
Daniel T. Carroll Donald P. Mathias
Director Director
/s/ MARTHA M. DALLY /s/ C. ANTHONY WAINWRIGHT
Martha M. Dally C. Anthony Wainwright
Director Director
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Schedule II - Valuation and Qualifying Accounts
AMERICAN WOODMARK CORPORATION
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Cost and Deduc- at End
Description(a) of Period Expenses tions of Period
- --------------------------- ---------- ---------- ------ ---------
Year ended April 30, 1996:
Allowance for doubtful
accounts $ 243 $ 620 $ (234)(b) $ 629
Reserve for cash discounts $ 240 $2,977(c) $(2,967)(d) $ 250
Reserve for sales returns
and allowances $ 698 $3,489(c) $(3,560) $ 627
Year ended April 30, 1995:
Allowance for doubtful
accounts $ 313 $ 40 $ (110)(b) $ 243
Reserve for cash discounts $ 225 $2,811(c) $(2,796)(d) $ 240
Reserve for sales returns
and allowances $ 679 $3,865(c) $(3,846) $ 698
Year ended April 30, 1994:
Allowance for doubtful
accounts $ 818 $ 234 $ (739)(b) $ 313
Reserve for cash discounts $ 240 $2,393(c) $(2,408)(d) $ 225
Reserve for sales returns
and allowances $ 903 $3,792(c) $(4,016) $ 679
(a) All reserves relate to accounts receivable.
(b) Principally write-offs, net of collections.
(c) Reduction of gross sales.
(d) Cash discounts granted.
S-1
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In accordance with Securities and Exchange Commission requirements, the Company
will furnish copies of all exhibits to its Form 10-K, not contained herein upon
receipt of a written request and payment of $.10 (10 cents) per page to:
Mr. Kent Guichard
Vice President, Finance and
Chief Financial Officer
American Woodmark Corporation
P.O. Box 1980
Winchester, Virginia 22604-8090
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Exhibit 10.7d
AMERICAN WOODMARK CORPORATION
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
PART I. PLAN ADMINISTRATION AND ELIGIBILITY
--------------------------------------------
I. PURPOSE
The purpose of this Non-Employee Directors Stock Option Plan (the
"Directors Plan") of American Woodmark Corporation (the "Company") is to
encourage ownership in the Company by non-employee members of the Board
of Directors (the "Board") of the Company, in order to promote long-term
shareholder value and to provide non-employee members of the Board with an
incentive to continue as directors of the Company.
II. ADMINISTRATION
The Directors Plan shall be administered by the Board. Grants of stock
options ("Options") under the Directors Plan shall be automatic as described in
Section VII. However, the Board shall have all powers vested in it by the terms
of the Directors Plan, including, without limitation, the authority (within the
limitations described herein) to prescribe the form of the agreement
embodying awards of stock options under the Directors Plan, to construe the
Directors Plan, to determine all questions arising under the Directors Plan,
and to adopt and amend rules and regulations for the administration of the
Directors Plan as it may deem desirable. Any decision of the Board in the
administration of the Directors Plan, as described herein, shall be final and
conclusive. The Board may act only by a majority of its members in office,
except that members thereof may authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of the
Board. No member of the Board shall be liable for anything done or omitted to
be done by him or any other member of the Board in connection with the
Directors Plan, except for his own willful misconduct or as expressly provided
by statute.
III. PARTICIPATION IN THE DIRECTORS PLAN
The Terms "parent corporation" and "subsidiary corporation," as used in
this Plan, shall have the meanings given them in Section 424(e) and (f) of the
Internal Revenue Code of 1990, as amended (the "Internal Revenue Code"),
and the term "subsidiary corporation" shall also mean an unconsolidated
subsidiary, whether or not 50%-owned.
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IV. STOCK SUBJECT TO THE DIRECTORS PLAN
The maximum number of shares of the Company's Common Stock ("Shares")
that may be issued upon exercise of Options granted pursuant to the
Directors Plan shall be 30,000, subject to adjustment as provided in
Section XII. Shares that have not been issued under the Directors Plan
allocable to Options and portions of Options that expire or terminate
unexercised may again be subject to a new Option.
PART II. OPTIONS
-----------------
V. NON-STATUTORY STOCK OPTIONS
All Options granted under the Directors Plan shall be non-statutory in
nature and shall not be entitled to special tax treatment under Section 422 of
the Internal Revenue Code.
VI. OPTION EXERCISE PRICE
The Option exercise price shall be the fair market value of the Shares
subject to such Option on the date the Option is granted, which shall be the
average of the highest and lowest reported sale prices per share of the Shares
on the NASDAQ National Issues Transaction Tape (or if there have been no
transactions, the average of the bid and asked prices) on the date of grant.
VII. TERMS, CONDITIONS AND FORM OF OPTIONS
Each Option shall be evidenced by a written agreement in such form as the
Board shall from time to time approve, which agreement shall comply with and
be subject to the following terms and conditions:
A. Option Grant Date. Each director of the Company who is eligible to be
granted an Option hereunder on the effective date of the Directors Plan (as
provided in Section XIII) shall automatically receive an Option to purchase
1,000 Shares. Each director newly elected by the Company's shareholders after
the effective date who is eligible to be granted Options hereunder on the
anniversary date of the Option grant shall automatically receive an Option to
purchase 1,000 Shares on the date of such Directors Plan anniversary. Each
director shall annually thereafter on the anniversary date of his first Option
grant automatically receive an Option to purchase 1,000 Shares. If at any time
under the Directors Plan there are not sufficient shares available to fully
permit the automatic Option grants described in this paragraph, the Option
grants shall be reduced pro rata (to zero if necessary) so as not to exceed
the number of Shares available.
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B. Options Not Transferable. An Option shall not be transferable by the
optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the optionee only by him or her.
An Option transferred by will or by the laws of descent and distribution may
be exercised by the optionee's personal representative within one year of the
date of the optionee's death to the extent the optionee could have exercised
the Option on the date of his or her death. No Option or interest therein may
be transferred, assigned, pledged or hypothecated by the optionee during his
or her lifetime, whether by operation of law or otherwise, or be made subject
to execution, attachment or similar process.
C. Exercise of Options. An Option shall be exercisable as to one-third of
the number of shares on the first anniversary of the Date of Grant, and as to
an additional one-third of the number of shares on each succeeding anniversary
until fully exercisable. No Option may be exercised:
1. before the Directors Plan is approved by shareholders of the
Company;
2. after the expiration of four (4) years from the date the Option is
granted; provided, however, that each Option shall be subject to
termination before its date of expiration as hereinafter provided;
3. except by written notice to the Company at its principal office,
stating the number of Shares the optionee has elected to purchase,
accompanied by payment in cash and/or by delivery to the Company of
Shares (valued at fair market value on the date of exercise) in the
amount of the full Option exercise price for the Shares being acquired
thereunder; and
4. only at such time as an optionee is a director of the Company, or
within three (3) months after the date the optionee ceases to be a
director of the Company, to the extent then exercisable.
VIII. WITHHOLDING
Upon the transfer of Shares as a result of the exercise of an option, the
Company shall have the right to retain or sell without notice sufficient Shares
(taken at the last reported sales price of such Shares on the NASDAQ National
Market Issues Transaction Tape on such date or dates as may be determined by
the Board, but not more than five business days prior to the date on which such
Shares would otherwise have been delivered) to cover the amount of any federal
or state income tax required by any government to be withheld or otherwise
deducted and paid with respect to such payment and the exercise of the
Options, remitting any balance to the optionee; provided, however, that the
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optionee shall have the right to provide the Company with the funds to enable it
to pay such tax.
IX. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
The Board shall have the power to modify, extend or renew outstanding
Options and to authorize the grant of new Options in substitution therefor,
provided that any such action may not have the effect of altering or impairing
any rights or obligations of any person under any Option previously granted
without the consent of the optionee.
PART III. GENERAL PROVISIONS
-----------------------------
X. TERMINATION
The Directors Plan shall terminate upon the earlier of:
A. The adoption of a resolution of the Board terminating the Directors
Plan; or
B. August 31, 1999.
No termination of the Directors Plan shall without his or her consent materially
and adversely affect any of the rights or obligations of any person under any
Option previously granted under the Directors Plan.
XI. LIMITATION OF RIGHTS
A. No Right to Continue as a Director. Neither the Directors Plan nor the
granting of an Option nor any other action taken pursuant to the Directors Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain any person as a director for any period
of time.
B. No Shareholder's Rights Under Options. An optionee shall have no
rights as a shareholder with respect to Shares covered by his or her Options
until the date of exercise of the Option, and, except as provided in
Section XII, no adjustment will be made for dividends or other rights for which
the record date is prior to the date of such exercise.
XII. CHANGES IN CAPITAL STRUCTURE
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Shares, the number of Shares that may
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be issued under the Directors Plan, and the number of Shares subject to or the
Option exercise price per Share under any outstanding Option, shall be adjusted
automatically so that the proportionate interest of the participant shall be
maintained as before the occurrence of such event. Such adjustment in
outstanding Options, with a corresponding adjustment in the Option exercise
price per Share, shall be made without change in the total Option exercise
price applicable to the unexercised portion of the Option, and any such
adjustment shall be conclusive and binding for all purposes of the Directors
Plan.
XIII. EFFECTIVE DATE OF THE DIRECTORS PLAN
The Directors Plan shall be effective on the date of adoption by the
shareholders of the Company.
XIV. AMENDMENT OF THE DIRECTORS PLAN
The Board may suspend or discontinue the Directors Plan or revise or
amend the Directors Plan in any respect; provided, however, that without
approval of the shareholders no revision or amendment shall increase the
number of Shares subject to the Directors Plan (except as provided in
Section XII) or materially increase the benefits accruing to participants
under the Directors Plan.
XV. NOTICE
Any written notice to the Company required by any of the provisions of the
Directors Plan shall be addressed to the Treasurer of the Company and
delivered personally or mailed first class, postage prepaid to the Company at
its principal business address.
XVI. MISCELLANEOUS PROVISIONS
A. Securities Laws. No Shares shall be issued hereunder if counsel for
the Company advises that such issuance would constitute a violation of
applicable securities laws.
B. Ratification. By accepting any Option or other benefit under the
Directors Plan, each participant and each person claiming under or through such
person shall be conclusively deemed to have given his or her acceptance and
ratification of, and consent to, any action taken by the Company or the Board.
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Exhibit 10.8
AMERICAN WOODMARK CORPORATION
Fiscal Year 1996
Incentive Plan for Officers
I. Purpose
The objectives of the Incentive Plan are threefold:
A. To provide an incentive which will encourage and reward outstanding
individual performance.
B. To help align the personal goals of the individuals with the overall
goals and objectives of American Woodmark.
C. Together with the Salary Administration Program; to provide a
compensation package, both in form and in total compensation value,
which is at least equal to or better than programs offered by
competition.
II. Eligibility for Participation in the Bonus Program
Positions included in the program are officers of the Company.
III. Payout of Bonus Awards
A. Officers
Officers will be paid in two components:
1. From 0-70% of their year-end salary based upon ROI.
2. From 0-30% of their salary based upon measurable goals which
support the achievement of the Company's goals.
There will be no payout if the Company loses money for the year.
Payouts will be made at the end of the fiscal year, and the
individual must be employed as of April 30, 1996 to be eligible.
<PAGE>
IV. Determination of Payout
Payout Percentage
A. ROI* Officers
Below 12.5 0
12.5 - 15% 14 - 30
15 - 20% 30 - 50
20 - 25% 50 - 65
25 - 30% 65 - 70
V. In addition to the above program, the President has the authority to
propose to the Compensation Committee additional special payouts for
individuals who perform in an exceptional way to dramatically and
favorably impact the Company's performance.
* ROI is return on investment: pre-tax pre-interest income (excluding
effects of accounting changes) divided by average net assets (excluding
cash, accounts payable and current liabilities).
2
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Exhibit 11
AMERICAN WOODMARK CORPORATION
Computation of Earnings Per Share
(in thousands, except per share amounts)
Fiscal Year Ended April 30
--------------------------
1996 1995 1994
------ ------ ------
Net income $3,846 $5,356 $2,176
Divided by weighted average
common shares outstanding 7,595 7,544 7,529
------ ------ ------
Earnings per share $ 0.51 $ 0.71 $ 0.29
====== ====== ======
<PAGE>
M I S S I O N S T A T E M E N T
CREATING VALUE THROUGH PEOPLE
WHO WE ARE
American Woodmark is an organization of employees and shareholders who have
combined their resources to pursue a common goal.
WHAT WE DO
Our common goal is to create value by providing kitchens and baths "of pride"
for the American family.
WHY WE DO IT
We pursue this goal to earn a profit, which allows us to reward our shareholders
and employees and to make a contribution to our society.
HOW WE DO IT
Four principles guide our actions:
Customer Satisfaction - Providing the best possible quality, service and
value to the greatest number of people. Doing whatever is reasonable, and
sometimes unreasonable, to make certain that each customer's needs are met
each and every day.
Integrity - Doing what is right. Caring about the dignity and rights of
each individual. Acting fairly and responsibly with all parties. Being
a good citizen in the communities in which we operate.
Teamwork - Understanding that we must all work together if we are to be
successful. Realizing that each individual must contribute to the team to
remain a member of the team.
Excellence - Striving to perform every job or action in a superior way.
Being innovative, seeking new and better ways to get things done. Helping
all individuals to become the best that they can be in their jobs and
careers.
ONCE WE'VE DONE IT
When we achieve our goal good things happen: sales increase, profits are made,
shareholders and employees are rewarded, jobs are created, our communities
benefit, we have fun, and our customers are happy and proud - with a new kitchen
or bath from American Woodmark.
<PAGE>
TABLE OF CONTENTS
Company Profile 2
Market Information 2
Financial Highlights 2
Letter from the Executive Office 3
Five Year Selected Financial Information 5
The 2001 Vision: A Blueprint for Growth 6
Management's Discussion and Analysis 11
Financial Statements 17
Notes to Financial Statements 20
Management's Report 26
Report of Independent Auditors 27
Board of Directors and Executive Officers 28
Corporate Information 29
<PAGE>
COMPANY PROFILE
American Woodmark Corporation manufactures and distributes kitchen cabinets
and vanities for the remodeling and new home construction markets. The Company
operates seven manufacturing facilities located in Arizona, Georgia, Virginia,
and West Virginia, and four service centers across the country.
American Woodmark Corporation was formed in 1980 and became a public
company through a Common Stock offering in July, 1986.
The Company offers approximately 100 cabinet lines in a wide variety of
designs, materials and finishes. Its products are sold on a national basis
through a network of independent distributors and directly to home centers,
major builders and home manufacturers. Approximately 60% of its sales during
fiscal year 1996 were to the remodeling market and 40% to the new home market.
The Company is one of the five largest manufacturers of kitchen cabinets in
the United States.
MARKET INFORMATION
American Woodmark Corporation no par value Common Stock is traded on the
NASDAQ Over-the-Counter market under the AMWD symbol. On April 30, 1996, there
were 7,608,761 shares of stock outstanding.
Market price ranges for the Company's Common Stock are set forth below.
Fiscal Years Ended April 30
-----------------------------
Quarter Ended 1996 1995
- ------------------------------------------------------
Market Price Market Price
High Low High Low
July 31 $6.13 $5.00 $6.00 $4.88
October 31 $5.50 $4.50 $6.38 $5.25
January 31 $4.88 $3.88 $5.75 $4.50
April 30 $5.56 $4.00 $6.25 $5.38
As of April 30, 1996, there were approximately 3,100 stockholders of the
Company's Common Stock. Included are approximately 85% of the Company's
employees who are stockholders through the American Woodmark Stock Ownership
Plan. For information regarding dividends, see Notes E and F to the Financial
Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(in thousands, except per share data) Years Ended April 30
--------------------------------------
1996 1995 1994
-------- -------- --------
OPERATIONS
Net sales $196,237 $197,351 $171,343
Operating income 7,281 10,154 5,423
Income before income taxes 6,238 8,822 3,523
Net income 3,846 5,356 2,176
Net income per share $ .51 $ .71 $ .29
Average shares outstanding -- Note F 7,595 7,544 7,529
FINANCIAL POSITION
Working capital $ 15,409 $ 14,162 $ 9,732
Total assets 76,336 74,408 72,321
Long-term debt 12,866 15,534 18,334
Stockholders' equity $ 35,845 $ 31,801 $ 26,376
Long-term debt to equity ratio 36% 49% 70%
2
<PAGE>
LETTER FROM THE EXECUTIVE OFFICE
To Our Shareholders:
On balance, fiscal 1996 was a good year for our Company. Despite an
unfavorable external environment for most of the year, we earned a net profit of
$3,846,000 or $.51 per share, our second best year since 1989.
Net sales decreased less than one percent to $196.2 million from $197.4
million the previous year. Overall sales levels were impacted by weak demand
across the entire home center industry, our largest single customer segment.
Comparative store sales were down at virtually all major home centers for most
of the year. Big ticket special order categories such as kitchen cabinets were
hit especially hard, with sales down over twenty percent for much of the year at
many home center outlets. Despite this environment, we maintained or increased
our market share with the leading home center chains. Our partnerships with The
Home Depot and Lowe's continued to grow during the year. We are the leading
supplier of stock cabinets to these customers, servicing both on a national
basis. We've found new ways to enhance our long standing partnership with
Builders Square. In addition, regional home center chains found our overall
product and service programs provide an effective platform to compete in their
local markets.
Net sales to distributors and builders continue to grow with the success
of our Timberlake(TM) brand of cabinets. Our extensive product line and
innovative service programs have successfully attracted new distributors and
have enhanced the ability of existing distributors to compete effectively in the
marketplace. Builders in key markets, such as Arizona, Florida and Texas, rely
upon the superior value offered by American Woodmark as a major component of
their sales strategies.
3
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The capital spending program which we funded over the past three years
substantially improved our operating efficiencies during the second half of
fiscal 1996. Material utilization initiatives, combined with favorable market
conditions for raw materials, resulted in the lowest overall material cost as a
percent of sales since fiscal 1992. New equipment and manufacturing techniques
resulted in our finishing the year with the highest labor productivity in the
last four years.
During the year, we again improved our financial strength with greater cash
reserves, further reductions in debt and increased retained earnings. Total
debt was reduced by $2.7 million to $15.6 million. With total cash on hand of
$7.2 million at year end, net debt was $8.4 million. Long-term debt to total
capital declined to 26% at year end, the lowest level in the history of our
Company.
After a very good year in 1995, fiscal 1996 began on something of a down
note. Even though sales in the first quarter were up almost 4% from the prior
year, we reported disappointing net income results of $.05 per share. Like many
companies, we did not anticipate the downturn in the home center industry and
had prepared the Company to support double digit growth. Although we reacted
quickly to reduce operating costs in the second quarter, the market continued to
drop. We reported an improvement from the first quarter, but net income of $.08
per share was still below our expectations.
The home center industry declined further in our third quarter which
resulted in a year-over-year decline in sales of 9.4%. Despite this significant
impact, net income was consistent with the second quarter at $.07 per share.
Through the first nine months of the fiscal year, we continued to focus on the
fundamental elements of our business and prepared the Company to take advantage
of the home center industry's eventual turnaround. The home center industry
strengthened during our fourth quarter and total sales increased to $53.3
million, up 7% from the prior year. Fourth quarter net income was $2.3 million
or $.30 per share, a record for fourth quarter earnings.
We are extremely proud of the dedication and performance of our employees
during this past year. They responded to an unfriendly external environment and
they responded quickly. As a result of their efforts, we continued to move
American Woodmark forward while remaining profitable in each quarter.
To all our employees, we thank you for your hard work and commitment this
past year. To our stockholders, thank you for your continuing support. We are
confident that we are building long-term value in your Company. We believe that
the market place will soon recognize the progress at American Woodmark and place
a fair value on your investment.
William F. Brandt, Jr. James J. Gosa
/s/ BILL BRANDT /s/ JAMES J. GOSA
Chairman and President and
Chief Executive Officer Chief Operating Officer
4
<PAGE>
FIVE YEAR SELECTED FINANCIAL INFORMATION
Years Ended April 30
---------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
FINANCIAL STATEMENT DATA
(in millions, except per share data)
Net sales $196.2 $197.4 $171.3 $167.3 $137.4
Income (loss) before income taxes 6.2 8.8 3.5 (0.7) (6.5)
Net income (loss) 3.8 5.4 2.2 (0.5) (4.0)
Net income (loss) per share (1) .51 .71 .29 (.06) (.54)
Depreciation and amortization expense 7.8 7.8 7.2 6.8 5.6
Restructuring costs -- 0.5 1.0 1.1 --
Total assets 76.3 74.4 72.3 78.5 82.3
Long-term debt 12.9 15.5 18.3 21.5 25.1
Stockholders' equity 35.8 31.8 26.4 24.2 24.7
Average shares outstanding (1) 7.6 7.5 7.5 7.5 7.5
PERCENT OF SALES
Gross profit 21.5% 23.5% 21.4% 18.2% 19.2%
Sales, general and administrative
expenses 17.8 18.1 17.6 16.5 22.1
Income (loss) before income taxes 3.2 4.5 2.1 (0.4) (4.7)
Net income (loss) 2.0 2.7 1.3 (0.3) (2.9)
RATIO ANALYSIS
Current ratio 1.7 1.6 1.4 1.2 1.3
Inventory turnover (2) 11.9 11.0 8.5 7.0 5.3
Percentage of capital:
(LTD & equity)
Debt 26.4% 32.8% 41.0% 47.0% 50.5%
Equity 73.6 67.2 59.0 53.0 49.5
Return on equity (average %) 11.4 18.4 8.6 (1.9) (15.2)
Collection period--days (3) 36.9 34.7 37.2 36.4 37.7
(1) The weighted average of common shares has been retroactively restated to
reflect a 10% stock dividend issued in September 1993.
(2) Based on average of beginning and ending Inventory.
(3) Based on ratio of monthly average Accounts Receivable to average Sales per
day.
5
<PAGE>
THE 2001 VISION: A BLUEPRINT FOR GROWTH
We are dedicated to a simple goal--superior return on investment for our
stockholders. To achieve this goal, we must create sales growth, consistent
improvement in period-over-period earnings and predictability in performance.
We have worked extremely hard over the past six years to transform
American Woodmark from the company it was to the company we believe it can
become. We have created our competitive advantage by building a business
platform based on four primary elements.
HOME CENTER MARKET POSITION
We are the leading supplier of stock cabinetry to the home center
industry. American Woodmark products are available nationwide through the
three largest national chains: The Home Depot, Lowe's and Builders Square.
Our products are also available through select regional home centers. These
valuable partnerships provide opportunities that few, if any, existing or
potential competitors can match.
6
<PAGE>
DISTRIBUTOR AND BUILDER MARKET POSITION
We have expanded our presence in the distributor channel over the past
several years with our Timberlake brand cabinets. Our full line of products and
services provide distributors with an extremely competitive offering. Our
long-time distributors are using this competitive advantage to gain share in
their home markets and to move into new markets. Large regional and national
distributors have been attracted to Timberlake and several have entered the
retail cabinet industry with American Woodmark supplied cabinets.
We have established competitive positions in the strong Sunbelt builder
markets. The breadth and value of our product line is helping builders
compete successfully. Our innovative service programs and other support
services have improved the efficiency of our customers' operations.
7
<PAGE>
WOOD PROCESSING TECHNOLOGY
As a vertically integrated manufacturer, American Woodmark has developed
superior capabilities in wood technologies. Innovative research and development
programs and focused capital spending continue to enhance our leadership
position.
8
<PAGE>
DELIVERY AND SERVICE PLATFORM
American Woodmark has developed a distribution system that can deliver
customer orders ranging from a single cabinet to a full truckload to virtually
any location in the United States quickly and at a competitive cost. We have
been a pioneer in such innovative programs as direct home delivery.
9
<PAGE>
American Woodmark is implementing a strategy that will provide long-term
sales growth through gaining market share in our core kitchen and bath cabinet
business and through the introduction of new products that take advantage of the
key elements of our business platform. Our expanded base will provide
consistent growth and improvements in performance.
Fiscal 1996 was the first year in our "2001 Vision," a six-year operating
plan designed to implement our strategy. Through this Vision, we have outlined
specific targets that will create the following results:
* Significant sales in new products and market categories not currently
serviced;
* Double total sales per home center outlet;
* A competitive presence in the top forty distributor/builder markets in
the United States; and
* Double productivity.
Our Vision is ambitious and we are under no allusions about the magnitude
of our task. The path we are choosing will be difficult and we will
undoubtedly experience a setback or two along this journey. As difficult as it
may be, we are committed to our Vision and we will overcome the obstacles. We
will find a path to our goal.
The men and women of American Woodmark share common values and a belief
about who we are and where we are going. We are resourceful and innovative.
Each of us contributes our individual talents and, together, we combine these
talents into focused teams. And these teams can climb mountains.
The "1995 Vision," the six-year plan developed in 1989, was revolutionary
in its impact on American Woodmark. The 2001 Vision is different--more
evolutionary than revolutionary. We are building new growth on the existing
foundation, rather than a new foundation. One thing, however, remains constant:
Our Mission Statement defines who we are, what we do, why we do it and how it
gets done. We maintain our unwavering belief in Creating Value Through People.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items as a
percentage of net sales.
Percentage of Net Sales
Years Ended April 30
----------------------------
1996 1995 1994
----------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales and distribution 78.5 76.5 78.6
Gross profit 21.5 23.5 21.4
Selling and marketing expenses 12.6 12.0 12.0
General and administrative expenses 5.2 6.1 5.6
Restructuring costs -- 0.3 0.6
Operating income 3.7 5.1 3.2
Interest expense 0.6 0.7 1.1
Income before income taxes 3.2 4.5 2.1
Provision for income taxes 1.2 1.8 0.8
Net income 2.0 2.7 1.3
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Fiscal 1996 net sales of $196.2 million decreased less than 1% from fiscal
1995 net sales of $197.4 million. A general price increase was implemented
during the year to recover rising product costs. Average unit prices increased
approximately 3% as the general price increase was partially offset by a shift
from the upper-end to the middle of the Company's broad stock product offering.
Overall unit volume decreased 3.5%. Unit shipments to home centers
declined as the industry experienced a general economic downturn. Demand for
durable, big ticket items was down significantly for most of the fiscal year at
virtually all home center chains. In this environment, however, the Company was
still able to maintain or increase market share at key home center accounts.
Unit volumes increased in the Distributor and Builder channels due to strong new
construction demand in certain geographical regions and to the addition of new
customers.
Gross profit declined to 21.5% of net sales from 23.5% the prior year.
Higher average unit prices were more than offset by increased per unit labor and
freight costs. In addition, gross profit was adversely impacted by unfavorable
leverage as a result of lower volumes on fixed and semi-fixed costs.
Material cost per unit remained flat with the prior year. Improvements in
lumber yield and price decreases for certain raw materials were offset by
unfavorable changes in the product mix and by the cost of additional standard
features offered on the Company's products.
Labor cost per unit rose due to normal rate increases, temporary
inefficiencies relating to capital projects early during the fiscal year, an
increase in employee health costs resulting from specific claim activity and
less than anticipated demand for product during the first nine months of the
fiscal year.
<PAGE>
Freight cost per unit increased due to new service programs developed to
support the Company's customer base and maintain the Company's competitive
position. Per unit overhead costs rose slightly due to the leverage impact from
lower volume on fixed and semi-fixed components of expenses.
11
<PAGE>
Sales and marketing expenses rose as a percentage of net sales from 12% in
fiscal 1995 to 12.6% in fiscal 1996. The Company implemented several aggressive
sales promotions and other sales support initiatives during the fiscal year to
maintain market share and generate incremental sales volume during the economic
downturn. General and administrative expenses decreased from 6.1% of net sales
in fiscal 1995 to 5.2% in fiscal 1996 due to reduced employee compensation costs
associated with the Company's performance incentive programs.
Fiscal 1996 interest expense declined $146,000 to $1.2 million from the
prior year. The decrease resulted from reduced short-term borrowings under the
Company's revolving credit facility and a continued reduction in long-term debt.
Total debt decreased $2.7 million, or 15%, during fiscal 1996.
During the third quarter of fiscal 1996, the Company received a tax refund
from the City of Winchester pertaining to property taxes paid in prior years for
the Company's Corporate Office in Winchester, Virginia. This tax refund, net of
specific recovery expenses, increased other income by $398,000.
Restructuring activities in fiscal 1996 were primarily limited to the
recognition of cash outlays directly related to ongoing efforts to reduce
warehouse space. These activities resulted in a reduction of established
restructuring reserves by $161,000 for lease commitments, $18,000 for severance
costs and $20,000 for the write-down of equipment. Annual savings of $438,000
for lease costs, $600,000 for payroll costs and $30,000 for depreciation expense
were partially offset by increased freight expenses and additional labor costs
to sequence production.
Restructuring costs of $516,000 were recognized in fiscal 1995 due to the
Company's efforts to reduce warehousing space. While these costs related to the
plan which initiated the restructuring activity in fiscal 1993, they were not
accruable until fiscal 1995 when uncertainties relating to the remaining two
warehouses in Florida and California were resolved. As a result, $380,000 for
lease termination costs and losses on lease commitments, $90,000 for severance
costs, and $46,000 for equipment and leasehold improvement write-downs were
recognized in fiscal 1995. Annual savings of $400,000 for lease costs, $340,000
for payroll, and $26,000 for depreciation expense were partially offset by
increased freight costs and additional labor costs to sequence production.
Future cash outlays to complete the restructuring activities are not
anticipated to exceed the remaining balance of $133,000 in the restructuring
reserve. (See Note I to the Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities in fiscal 1996 generated $11.7 million
in net cash compared to $10.9 million the prior year. Net profit before
non-cash charges for depreciation and amortization, timing differences in the
payment of performance incentives and related compensation expenses, and the
refund of short-term deposits were the primary contributors to cash in fiscal
1996. The short-term deposits were made during the prior fiscal year to fund
the construction of equipment now in operation at the Toccoa, Georgia facility.
The equipment was financed through an operating lease. Promotional display
shipments and decreased payables reduced cash provided by operating activities.
Capital spending increased $1.1 million from the prior year to $5.0
million as the Company
12
<PAGE>
continued its capital spending program designed to improve the Company's
competitive position and to lower overall cost. During fiscal 1996, equipment
was purchased for the Hardy County, West Virginia facility, the Toccoa, Georgia
facility and the Orange, Virginia facility to optimize process flows and lower
costs. All other capital expenditures during fiscal 1996 were limited to
necessary or replacement items and cost savings projects.
Net cash used for financing activities in fiscal 1996 decreased $2.5
million from the prior year. The difference was the result of payments in
fiscal 1995 that eliminated the Company's short-term revolving debt balance.
The Company reduced overall debt by $2.7 million during fiscal 1996. Total debt
on April 30, 1996 was $15.6 million and did not include any short-term
borrowings under the Company's credit facility. Long-term debt to total equity
declined from 48.8% at April 30, 1995 to 35.9% at April 30, 1996. Cash and cash
equivalents increased $4.3 million to $7.2 million at year end.
Cash flow from operations, combined with available borrowing capacity, is
expected to be sufficient to meet forecasted working capital requirements,
service existing debt obligations and fund capital expenditures for fiscal 1997.
OUTLOOK FOR 1997
The Company anticipates an overall economic environment of low to moderate
growth supported by stable interest rates and low inflation. The Company
anticipates that demand in the domestic cabinet market will return to the levels
experienced prior to the economic downturn which impacted the home center
industry in 1995. In this environment, the Company expects to gain market share
and to generate higher sales based on its position with major customers, its
broad stock product offering and its ability to deliver quality products with
superior service.
The Company expects to improve the profitability experienced in fiscal
1996. Additional volume, the full-year impact of the general price increase
implemented during the third quarter of fiscal 1996 and higher productivity
should be sufficient to offset the anticipated rise in other costs.
The Company currently maintains sufficient overall capacity to meet
projected growth over the next two years. In this environment, the Company's
strategy is, on average, to reinvest at least depreciation on an annual basis.
The Company is anticipating average to slightly above average capital
expenditures in fiscal 1997. Identified projects include expansion to remove
specific capacity limitations in certain processes, productivity improvements,
cost savings and replacement of aging equipment. The Company establishes debt
to equity targets in order to maintain the financial health of the Company and
is prepared to trim capital spending plans if cash flow from operations is below
planned levels. The Company anticipates capital expenditures will be funded
from a combination of cash flow from operations and cash on hand.
While the Company is not currently aware of any events that would result in
a material decline in earnings from fiscal 1996, we participate in an industry
that is subject to rapidly changing conditions. The preceding forward looking
statements are based on current expectations, but there are numerous factors
that could cause the Company to experience a decline in sales or earnings
including: (1) overall industry demand at depressed levels, (2) economic
weakness in a specific channel of distribution, especially the home center
industry, (3) the loss of sales from specific customers due to their loss of
market share, bankruptcy or switching to a competitor,
13
<PAGE>
(4) a sudden and significant rise in basic raw material costs, and (5) the need
to respond to competitive initiatives launched by a competitor. While the
Company believes these risks to be manageable and believes that these risks will
not materially impact the long-term performance of the Company, these risks
could under certain circumstances have a materially adverse impact on short-term
operating results.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Fiscal 1995 net sales of $197.4 million increased 15.2% from $171.3 million
the prior year. A general price increase was implemented during the year to
recover rising material costs. Average unit prices increased as the result of
the price increase and a shift towards the upper-end of the Company's broad
stock product offering.
Overall unit volume increased 8.2%, with increases across all three market
channels. The volume increase in the home center channel was attributed to both
strong remodeling activity and increases in market share. Distributor volume
increased due to additional distributors marketing the Company's products,
strong remodeling activity and improved new construction levels in certain
geographical regions. Direct builder volume increased as the Company benefited
from new construction growth in selected markets.
Gross profit improved to 23.5% of net sales from 21.4% the prior year.
Higher average unit prices combined with favorable volume leverage on the
Company's fixed and semi-fixed costs more than offset increases in per unit
material, labor and freight costs. Reductions in warehouse space utilized in
the Company's operations contributed to additional cost savings.
Material costs increased with sales of a more material-intensive product
mix and price increases on raw materials, especially on particle board and
cardboard.
Labor costs rose due to rate increases and costs related to performance
incentives. Health care costs were reduced for the second straight year,
without a significant change in cost or coverage for the employee, due to
participation in a managed care network.
Freight costs increased as a result of the reconfiguration of the Company's
distribution network. Freight cost increases were more than offset by decreases
in costs related to warehousing operations. Per unit overhead costs declined
due to the leverage impact of higher volume on fixed and semi-fixed components
of expenses.
Sales and marketing expenses, as a percentage of net sales, were 12% in
both fiscal 1995 and fiscal 1994. The Company continued to pursue market
opportunities through aggressive advertising, promotions and other sales
support. General and administrative expenses increased from 5.7% of net sales
in fiscal 1994 to 6.1% in fiscal 1995 due to increased compensation expenses
primarily due to costs associated with the Company's performance incentive
programs.
Net interest expense in fiscal 1995 declined $534,000 to $1.4 million from
the prior year. A slight rise in interest rates was more than offset by a
significant reduction in outstanding debt. Total debt decreased $5.2 million or
22%, during fiscal 1995.
In fiscal 1993, the Company initiated a restructuring plan to lower the
Company's break-even point by reducing the overall cost structure and facilitate
progress toward Company strategic goals. Specific actions initiated were a
salaried headcount reduction, a re-deployment of management to create regional
teams for the three areas served by the Company's assembly plants, out-sourcing
literature warehousing and distribution operations, and a reduction in finished
goods warehousing operations. (See Note I to the Financial Statements.)
<PAGE>
Restructuring costs of $516,000 were recognized in fiscal 1995 due to
continued efforts to reduce warehousing space. While these costs related to the
1993 plan, they were not accruable until fiscal 1995 when uncertainties for the
remaining two Company warehouses in Florida and California were resolved. As a
result, $380,000 for lease termination costs and losses on lease commitments,
$90,000 for severance costs and $46,000 for equipment and leasehold improvement
write-downs were recognized in fiscal 1995. Annual savings of $400,000 for
lease costs, $340,000 for payroll, and $26,000 for depreciation expense were
partially offset by increased freight costs and additional labor costs to
sequence production.
In fiscal 1994, the Company recognized $622,000 related to the
restructuring activities initiated in fiscal 1993 that did not become accruable
until fiscal 1994. Uncertainties for three of the Company's warehouses in
Illinois, California and Texas were resolved, resulting in $347,000
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<PAGE>
for lease termination costs and losses on lease commitments and $275,000 for
equipment and leasehold improvement write-downs. Annual savings of $600,000 for
lease cost reductions, $500,000 for payroll reductions and $25,000 for
depreciation cost reductions were mitigated by incremental variable freight
costs and additional labor costs at the assembly plants to sequence production.
Also in fiscal 1994, the Company initiated a second restructuring plan to
consolidate certain manufacturing operations and to discontinue its frameless
product line, resulting in recognition of an additional $391,000 in
restructuring costs. Costs of $157,000 were recorded to write-down equipment
impaired by the Company's decision to consolidate certain manufacturing
operations. Furthermore, the introduction of new technology allowing similar
features on a standard cabinet box eliminated the requirement for a frameless
product. Accordingly, the Company recognized $234,000 for restructuring costs
for write-downs of dedicated frameless equipment and obsolete inventory.
OTHER COMMENTS
The Company's business has historically been subjected to seasonal
influences, with higher sales typically realized in the second and fourth fiscal
quarters. General economic forces and changes in the Company's customer mix
have reduced seasonal fluctuations in the Company's revenue over the past few
years.
The costs of the Company's products are subject to inflationary pressures
and commodity price fluctuations. Inflationary pressure and commodity price
increases have been relatively modest over the past five years, except for
lumber prices which rose over 35% during fiscal 1993. The Company has generally
been able over time to recover the effects of inflation and commodity price
fluctuations through sales price increases.
On November 27, 1995 the Company's Board of Directors elected Mr. James J.
Gosa to President and Chief Operating Officer. Mr. Gosa was formerly the
Executive Vice President of the Company. Mr. William F. Brandt, Jr., formerly
President, now serves as Chairman of the Board of Directors and Chief Executive
Officer.
The Company's Vice President of Sales and Marketing, Mr. C. Stokes Ritchie,
resigned from the Company effective April 30, 1996.
During the first quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Adoption of
this Statement did not have a material impact on the Company's operating results
or financial position. (See Note D to the Financial Statements.)
The Company does not expect that implementation of SFAS No. 123,
"Accounting for Stock-Based Compensation", which is required to be adopted by
the Company beginning in fiscal 1997, will have a material effect on the
Company's operating results or financial position. (See Note F to the Financial
Statements.)
The Company is involved in various suits and claims in the normal course of
of business. Included therein are claims against the Company pending before the
Equal Employment Opportunity Commission. Although management believes that such
claims are without merit and intends to vigorously contest them, the ultimate
outcome of these matters cannot be determined at this time. In the opinion of
management, after consultation with counsel, the ultimate liabilities and
losses, if any, that may result from suits and claims involving the Company will
not have any material adverse effect on the Company's operating results or
financial position.
The Company is voluntarily participating with a group of companies which is
cleaning up a waste facility site at the direction of a state environmental
authority. The Company is also involved in other matters under the direction of
state environmental authorities.
<PAGE>
The Company records liabilities for all probable and reasonably estimable
loss contingencies on an undiscounted basis. For loss contingencies related to
environmental matters, liabilities are based on the Company's proportional
contamination of a site since management believes it "probable" that the other
parties, which are financially solvent, will fulfill their proportional share of
the contamination obligation of a site. There are no probable insurance or
other indemnification receivables recorded. The Company has accrued for all
known environmental remediation costs which are probable and can be reasonably
estimated, and such amounts are not material. (See Note J to the Financial
Statements.)
15
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITIED)
(in thousands, except per share amounts) Year Ended April 30, 1996
-------------------------------------
1st 2nd 3rd(a) 4th(b)
-------------------------------------
Net sales $47,250 $48,927 $46,793 $53,267
Gross profit 9,294 9,662 9,468 13,831
Income before income taxes 599 1,023 905 3,711
Provision for income taxes 238 398 346 1,410
Net income 361 625 559 2,301
Net income per share .05 .08 .07 .30
Year Ended April 30, 1995
-------------------------------------
1st 2nd(c) 3rd 4th(d)
-------------------------------------
Net sales $45,518 $54,004 $48,145 $49,684
Gross profit 10,786 13,353 11,056 11,123
Income before income taxes 1,967 3,065 1,742 2,048
Provision for income taxes 799 1,180 640 847
Net income 1,168 1,885 1,102 1,201
Net income per share .16 .25 .15 .16
(a) Income before income taxes for the third quarter of fiscal 1996 reflects
$109,000 in equipment write-downs and a property tax refund of $398,000,
net of specific recovery expenses.
(b) Income before income taxes for the fourth quarter of fiscal 1996 includes
$530,000 in unfavorable adjustments to increase allowance for bad debt.
Also included is the effect of LIFO liquidations which resulted in costs
being $120,000 less than would have been recorded in a current cost
environment.
(c) Income before income taxes in the second quarter of fiscal 1995 reflects
$516,000 in restructuring costs and $204,000 in equipment write-downs.
Also included is the effect of LIFO liquidations which resulted in costs
being $174,000 less than would have been recorded in a current cost
environment.
(d) Income before income taxes in the fourth quarter of fiscal 1995 reflects
$353,000 in favorable adjustments to receivables for over-accrued
allowances.
16
<PAGE>
BALANCE SHEET
(in thousands, except share data) April 30
----------------------
1996 1995
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 7,201 $ 2,876
Refundable deposits -- 1,708
Customer receivables 19,709 19,639
Inventories 10,326 10,775
Prepaid expenses and other 899 738
Deferred income taxes 527 433
-------- --------
Total Current Assets 38,662 36,169
Property, Plant and Equipment 33,188 33,722
Deferred Costs and Other Assets 3,982 3,714
Intangible Pension Assets 504 803
-------- --------
$76,336 $74,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,651 $ 8,876
Accrued compensation and related expenses 8,467 7,156
Current maturities of long-term debt 2,719 2,800
Other accrued expenses 4,416 3,175
-------- --------
Total Current Liabilities 23,253 22,007
Long-Term Debt, less current maturities 12,866 15,534
Deferred Income Taxes 2,780 3,028
Long-Term Pension Liabilities 1,592 2,038
Commitments and Contingencies -- --
Stockholders' Equity
Preferred Stock, $1.00 par value; 2,000,000
shares authorized, none issued
Common Stock, no par value; 20,000,000
shares authorized; issued and outstanding
7,608,761 -- 1996; 7,551,109 -- 1995 17,677 17,479
Retained earnings 18,168 14,322
-------- --------
Total Stockholders' Equity 35,845 31,801
-------- --------
$76,336 $74,408
======== ========
See notes to financial statements
17
<PAGE>
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended April 30
--------------------------------------
(in thousands, except share data) 1996 1995 1994
---------- ---------- ----------
Net sales $ 196,237 $ 197,351 $ 171,343
Cost of sales and distribution 153,982 151,033 134,682
---------- ---------- ----------
Gross Profit 42,255 46,318 36,661
Selling and marketing expenses 24,775 23,667 20,532
General and administrative expenses 10,199 11,981 9,693
Restructuring costs -- 516 1,013
---------- ---------- ----------
Operating Income 7,281 10,154 5,423
Interest expense 1,209 1,355 1,889
Other (income) expense (166) (23) 11
---------- ---------- ----------
Income Before Income Taxes 6,238 8,822 3,523
Provision for income taxes 2,392 3,466 1,347
---------- ---------- ----------
NET INCOME 3,846 5,356 2,176
RETAINED EARNINGS, BEGINNING OF YEAR 14,322 8,966 9,013
Stock dividend -- -- (2,223)
---------- ---------- ----------
RETAINED EARNINGS, END OF YEAR $ 18,168 $ 14,322 $ 8,966
========== ========== ==========
EARNINGS PER SHARE
Average shares outstanding 7,594,977 7,544,385 7,528,526
Net income per share $ .51 $ .71 $ .29
========== ========== ==========
See notes to financial statements
18
<PAGE>
STATEMENT OF CASH FLOWS
(in thousands) Years Ended April 30
----------------------------
1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 3,846 $ 5,356 $ 2,176
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 7,839 7,758 7,195
Net loss on disposal of property, plant
and equipment 126 34 47
Deferred income taxes (342) 284 395
Restructuring costs -- 178 726
Other non-cash items 831 532 18
Changes in operating assets and liabilities:
Customer receivables (631) (928) (1,539)
Income taxes receivable -- -- 529
Inventories 177 572 2,428
Refundable deposits 1,708 (1,708) --
Other assets (2,828) (2,767) (2,052)
Accounts payable (1,231) 625 (1,135)
Accrued compensation and related expense 1,338 1,444 1,017
Other 908 (500) 822
-------- -------- --------
Net Cash Provided by Operating Activities 11,741 10,880 10,627
INVESTING ACTIVITIES
Payments to acquire property, plant
and equipment (5,030) (3,942) (3,379)
Funds designated for capital expenditures -- 468 1,002
Proceeds from sales of property, plant
and equipment 221 99 59
-------- -------- --------
Net Cash Used by Investing Activities (4,809) (3,375) (2,318)
FINANCING ACTIVITIES
Payments of long-term debt (2,805) (3,158) (3,641)
Net decrease in short-term borrowings -- (2,000) (6,000)
Common Stock issued through stock option plans 198 69 14
-------- -------- -------
Net Cash Used by Financing Activities (2,607) (5,089) (9,627)
-------- -------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,325 2,416 (1,318)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,876 460 1,778
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,201 $ 2,876 $ 460
======== ======== ========
See notes to financial statements
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note A -- Significant Accounting Policies
The Company manufactures and distributes kitchen cabinets and vanities for
the remodeling and new home construction markets. The Company's products are
sold on a national basis through a network of independent distributors and
directly to home centers and major builders.
The following is a description of the more significant accounting policies
of the Company.
Revenue Recognition: Revenue is recognized as shipments are made to the
customer. Revenue is based on invoice price less allowances for sales returns
and cash discounts.
Cash and Cash Equivalents: Cash in excess of operating requirements is
invested in short-term instruments which are carried at fair value (approximates
cost). The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at lower of cost, determined by the
last-in, first-out method (LIFO), or market. The LIFO cost reserve is
determined in the aggregate for inventory and is applied as a reduction to
inventories determined on the first-in, first-out method (FIFO). FIFO inventory
cost approximates replacement cost.
Property, Plant and Equipment: Property, plant and equipment is stated on
the basis of cost less an allowance for depreciation. Depreciation of plant and
equipment is provided by the straight-line method over the estimated useful
lives.
Advertising Costs: Advertising costs are expensed as incurred.
Promotional Displays: The Company's investment in promotional displays is
carried at cost less applicable amortization. Amortization is provided by the
straight-line method on an individual display basis over the estimated period of
benefit (approximately 30 months).
Income Taxes: Income taxes are calculated using the liability method in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109. The
liability method requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Earnings Per Share: Earnings per share are based on the weighted average
common shares outstanding. The dilutive effect of stock options on earnings per
share is not significant and has been excluded.
Fair Value of Financial Instruments: The carrying amount of the Company's
cash and cash equivalents, accounts receivable, accounts payable and long-term
debt approximates fair value.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
<PAGE>
Note B -- Customer Receivables
The components of customer receivables were:
April 30
------------------------
(in thousands) 1996 1995
-------- --------
Gross customer receivables $21,215 $20,820
Less:
Allowance for bad debt (629) (243)
Allowance for returns
and discounts (877) (938)
-------- --------
Net customer receivables $19,709 $19,639
======== ========
Note C -- Inventories
The components of Inventories were:
April 30
------------------------
(in thousands) 1996 1995
-------- --------
Raw materials $ 5,261 $ 5,650
Work-in-process 9,336 9,876
Finished goods 1,392 1,110
-------- --------
Total FIFO Inventories 15,989 16,636
Reserve to adjust Inventories
to LIFO value (5,663) (5,861)
-------- --------
Total LIFO Inventories $10,326 $10,775
======== ========
As a result of LIFO Inventory liquidations, cost of sales reflected
$120,000, $317,000, and $667,000 less expense in fiscal 1996, 1995, and 1994,
respectively, than would have been recorded in a current cost environment.
20
<PAGE>
Note D -- Property, Plant and Equipment
The components of property, plant and equipment were:
April 30
------------------------
(in thousands) 1996 1995
-------- --------
Land $ 876 $ 876
Buildings and improvements 16,817 16,504
Buildings and improvements -
capital leases 6,550 6,550
Machinery and equipment 49,383 48,221
Machinery and equipment -
capital leases 1,861 1,956
Construction in progress 850 1,331
-------- --------
76,337 75,438
Less allowance for depreciation (43,149) (41,716)
-------- --------
Total $33,188 $33,722
======== ========
Depreciation expense amounted to $5,128,000, $5,028,000, and $5,372,000 in
fiscal 1996, 1995, and 1994, respectively.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in the first
quarter of fiscal 1996. SFAS 121 addresses situations where information
indicates that a company might be unable to recover, through future operations
or sale, the carrying amount of long-lived assets, identifiable intangibles, and
goodwill related to those assets. Adoption of this Statement did not have a
material impact on the Company's results of operations or financial position.
Note E -- Loans Payable and Long-Term Debt
Maturities of long-term debt are as follows:
Years Ending April 30
---------------------------------------------------
2002 and Total
There- Out-
(in thousands) 1997 1998 1999 2000 2001 after standing
------ ------ ------ ------ ------ -------- --------
Notes payable $1,015 $ 758 $ 500 $ 125 $ -- $ -- $ 2,398
Industrial Revenue Bonds 1,105 1,105 1,120 750 750 3,425 8,255
Capital lease obligations 599 367 372 376 395 2,823 4,932
------ ------ ------ ------ ------ -------- --------
Total $2,719 $2,230 $1,992 $1,251 $1,145 $6,248 $15,585
====== ====== ====== ====== ====== ========
Less current maturities 2,719
--------
Total $12,866
========
<PAGE>
The Company's primary loan agreement provides for term loans and a $12
million revolving credit facility. This agreement includes various variable
interest rate options which lower and raise the interest rate based on Company
performance. The maximum interest rate under the agreement is the prime rate.
The revolving credit facility is used by the Company as a working capital
account. As such, borrowings and repayments may routinely occur on a daily
basis. The outstanding balance against this line of credit never exceeded $1.7
million and $3.3 million in fiscal 1996 and 1995, respectively. In fiscal 1996,
the total transactions through this credit facility were borrowings of $7.5
million and payments of $7.5 million. In fiscal 1995, the total transactions
through this facility were borrowings of $10.2 million and payments of $12.2
million, resulting in a net reduction of $2.0 million for the fiscal year. No
revolving credit loans were outstanding at April 30, 1996 and 1995.
The Company employs straight-forward interest rate swap agreements to
assist in maintaining a balance between fixed and variable interest rates on
outstanding debt. Any deferred gain or loss associated with the swap agreements
is accounted for over the life of the swaps at the fixed rate stipulated in the
executed agreements. On April 30, 1996, these amounts were immaterial. The
Company does not invest, trade, or otherwise speculate in any derivatives or
similar type instruments.
At April 30, 1996, term loans of $2.4 million were outstanding. The term
loans bore a variable interest rate of 6.6% on April 30, 1996.
On April 30, 1996, the Company had $8.3 million outstanding in industrial
revenue bonds, maturing at various dates through 2002. Due to an interest rate
swap agreement, a fixed rate of 6.2% applies to $6.6 million through June 1,
1999. The variable rate that would have applied if the rate swap had not
occurred was 4.4% on April 30, 1996. On $1.7 million of outstanding bonds, the
variable interest rate was 4.4% on April 30, 1996.
Substantially all of the industrial revenue bonds are redeemable at the
option of the bondholder. The Company has irrevocable arrangements to refinance
these bonds on a long-term basis in the event they are redeemed.
Interest rates on the Company's capital lease obligations were
approximately 5.0% on April 30, 1996, and these obligations mature through 2007.
The Company's primary loan agreement limits the amount and type of
indebtedness the Company can incur, prohibits the payment of cash dividends,
21
<PAGE>
and requires the Company to maintain a specific minimum net worth and specified
financial ratios measured on a quarterly basis. Substantially all assets of the
Company are pledged as collateral under the primary loan agreement, industrial
revenue bond agreements and capital lease arrangements. The Company was in
compliance with all covenants contained in its loan agreements at April 30,
1996.
Interest paid was $1,178,000, $1,376,000, and $1,927,000 during fiscal
1996, 1995, and 1994, respectively. Net amounts to be received or paid under
interest rate swap agreements are accrued as an adjustment to interest expense.
Note F -- Stockholders' Equity
Common Stock
Transactions affecting Common Stock were as follows:
Shares Amount
Outstanding (in thousands)
----------- --------------
Balance at April 30, 1994 7,531,225 $ 17,410
Stock options exercised 19,884 69
----------- --------------
Balance at April 30, 1995 7,551,109 $ 17,479
Stock options exercised 57,652 198
----------- --------------
Balance at April 30, 1996 7,608,761 $ 17,677
=========== ==============
The Company has not paid any cash dividends on its Common Stock since its
inception.
Employee Stock Ownership Plan
In fiscal 1990, the Company instituted the American Woodmark Stock
Ownership Plan (AWSOP). Under this plan, all employees over the age of 18 who
have been employed by the Company for a minimum of one year are eligible to
receive Company stock through a profit sharing contribution and a 401(k)
matching contribution based upon the employee's contribution to the plan.
Profit sharing contributions are 3% of after tax earnings, calculated on a
quarterly basis and distributed equally to all employees eligible to participate
in the plan. The Company recognized expenses for profit sharing contributions
of $115,000, $155,000, and $81,000 in fiscal 1996, 1995, and 1994, respectively.
The Company matches 401(k) contributions in the amount of 50% of an
employee's contribution to the plan up to 3% of base salary for an effective
maximum Company contribution of 1.5%. The expense for 401(k) matching
contributions for this plan was $502,000, $407,000, and $237,000 in fiscal 1996,
1995, and 1994, respectively.
<PAGE>
Stock Options
In 1986, stockholders approved a stock option plan for key employees of the
Company. This plan expired in April 1996. The outstanding options are
exercisable in annual cumulative increments of 33.33% beginning one year after
the date of grant and must be exercised within twelve months after the
cumulative increments equal 100%, at which time the options expire.
The following table summarizes stock option activity under this plan for
the fiscal year ended April 30, 1996:
Number Option Price
of Shares per Share
--------- ------------
Outstanding at May 1, 1995 303,705 $2.39-$5.64
Granted 60,600 $4.38-$5.50
Exercised (57,652) $2.39-$4.09
Expired or cancelled (71,808) $2.39-$5.13
---------
Outstanding at April 30, 1996 234,845 $2.39-$5.64
=========
Exercisable at April 30, 1996 134,745 $2.39-$5.64
=========
Available for future
issuance at April 30, 1996 0
=========
In August 1995, stockholders approved a stock option plan for non-employee
directors, which replaced the 1990 Plan that had expired. At April 30, 1996,
options granted under the 1990 Plan (ranging from $2.50 to $5.75 per share) for
18,074 shares were outstanding, of which 7,941 options (ranging from $2.50 to
$5.75 per share) were exercisable. Under the 1990 Plan options for 3,663 shares
expired at $3.64 per share during fiscal 1996.
Under the new 1995 Plan, 30,000 shares of Common Stock may be granted as
options. During fiscal 1996, options for 6,000 shares were granted under the
new plan at $4.94 per share. No options were exercised under either plan in
fiscal 1996.
The Company currently accounts for its stock-based compensation plans using
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25).
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation". Under the provisions
of SFAS 123, companies may elect to account for stock-based compensation plans
using a fair-value-based method or continue measuring compensation expense for
those plans using the intrinsic value method prescribed in APB 25. SFAS 123
requires that companies electing to continue using the intrinsic value method
must make pro forma disclosures of net income and earnings per share as if the
fair-value-based method of accounting had been applied. The disclosures
required by SFAS 123 will be included in the Company's 1997 financial
statements.
As the Company anticipates continuing to account for stock-based
compensation using the intrinsic value method, SFAS 123 will not have an impact
on the Company's results of operations or financial position.
22
<PAGE>
Note G -- Employee Benefits
The Company has two defined benefit pension plans covering substantially
all employees. The plan covering salaried employees provides pension benefits
based upon a formula which considers salary levels and length of service. The
hourly pension plan provides benefits based upon an hourly rate formula.
Contributions to the plans meet or exceed the minimum funding standards set
forth in the Employee Retirement Income Security Act of 1974. Pension plan
assets are invested in equity mutual funds and fixed income security funds.
Net periodic pension costs were comprised of the following:
Years Ended April 30
---------------------------
(in thousands) 1996 1995 1994
Service cost-benefits ------- ------- -------
earned during the year $ 763 $ 663 $ 637
Interest cost on projected
benefit obligation 1,031 880 790
Actual return on plan
assets (1,846) (684) (528)
Net amortization and
deferrals 1,045 (109) (231)
------- ------- -------
Net periodic pension cost $ 993 $ 750 $ 668
======= ======= =======
<PAGE>
The funded status of the Company's pension plans was as follows for the
fiscal years ended April 30:
1996 1995
------------------------ ------------------------
Plan assets Accumulated Plan assets Accumulated
exceed benefit exceed benefit
accumulated obligation accumulated obligation
benefit exceeds benefit exceeds
(in thousands) obligation plan assets obligation plan assets
----------- ----------- ----------- -----------
Actuarial present value
of pension benefit
obligation:
Vested $ 6,495 $ 4,904 $5,531 $ 4,460
Non-vested 402 449 362 393
----------- ----------- ----------- -----------
Accumulated 6,897 5,353 5,893 4,853
Effect of anticipated
future salary increases 2,200 -- 2,269 --
----------- ----------- ----------- -----------
Projected 9,097 5,353 8,162 4,853
Fair value of plan assets 8,525 4,668 7,309 4,086
----------- ----------- ----------- -----------
Projected benefit obligation
in excess of the fair
value of plan assets 572 685 853 767
Unrecognized prior service
cost (53) (310) (61) (307)
Unrecognized net gain (loss) 1,746 (48) 1,089 (318)
Unrecognized net transition
obligation (264) (146) (315) (178)
Additional minimum liability -- 504 -- 803
----------- ----------- ----------- -----------
Net pension obligation $ 2,001 $ 685 $ 1,566 $ 767
=========== =========== =========== ===========
Primary assumptions utilized in accounting for the Company's pension plans
were as follows:
Years Ended April 30
--------------------------------
1996 1995 1994
---- ---- ----
Weighted average assumed
discount rate 8.0% 8.0% 8.0%
Estimate of salary increases
(salaried plan only) 4.0% 4.0% 4.0%
Expected long-term rate
of return on assets 8.0% 8.0% 8.0%
<PAGE>
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits", in the first quarter of fiscal 1995. SFAS No. 112 requires the
Company to accrue for postemployment benefits provided to former or inactive
employees that have not retired. Adoption of this Statement did not have a
material impact on the Company's operating results or financial position.
23
<PAGE>
Note H -- Income Taxes
The provision for income taxes is comprised of the following:
Years Ended April 30
----------------------------------
(in thousands) 1996 1995 1994
Current -------- -------- --------
Federal $ 2,429 $ 2,619 $ 787
State 305 563 165
-------- -------- --------
Total current 2,734 3,182 952
-------- -------- --------
Deferred
Federal (283) 272 361
State (59) 12 34
-------- -------- --------
Total deferred (342) 284 395
-------- -------- --------
Total $ 2,392 $ 3,466 $ 1,347
======== ======== ========
The Company's effective income tax rate varied from the federal statutory
rate as follows:
Years Ended April 30
----------------------
1996 1995 1994
------ ------ ------
Federal statutory rate 34% 34% 34%
State income taxes, net
of federal tax effect 3 4 4
Other 1 1 --
------ ------ ------
Effective Rate 38% 39% 38%
====== ====== ======
Income taxes paid were $1,809,000, $3,547,000, and $1,128,000 for fiscal
years 1996, 1995, and 1994, respectively. Income tax refunds received were
$64,000, $3,000, and $534,000 for fiscal years 1996, 1995 and 1994,
respectively.
<PAGE>
The significant components of deferred tax assets and liabilities are as
follows:
April 30
-----------------
(in thousands) 1996 1995
Deferred Tax Assets ------ ------
Employee benefits $ 579 $ 566
Other 913 845
------ ------
Total 1,492 1,411
Deferred Tax Liabilities
Depreciation 2,996 3,344
Inventory 555 530
Other 194 132
------ ------
Total 3,745 4,006
------ ------
Net Deferred Tax Liabilities $2,253 $2,595
====== ======
Note I -- Restructuring Provisions
The Company initiated a restructuring plan in fiscal 1993 to lower the
Company's break-even point by reducing the overall cost structure and facilitate
progress toward Company strategic goals.
Restructuring charges were recognized in fiscal 1994 and fiscal 1995
pursuant to SFAS No. 5 and AIN-APB 30#1. Costs were recorded when the Company
decided to initiate the restructuring, a plan of action had been determined, and
costs for the plan became reasonably estimable.
In fiscal 1994, the Company initiated a second restructuring plan,
recording $391,000 in restructuring costs, to consolidate certain manufacturing
operations and to discontinue its frameless product line. The Company
recognized $622,000 in restructuring costs in fiscal 1994 related to the
restructuring activities initiated in fiscal 1993 that did not become accruable
until fiscal 1994.
The Company recognized $516,000 in restructuring costs in fiscal 1995
related to the restructuring activities initiated in fiscal 1993 that did not
become accruable until fiscal 1995.
<PAGE>
Fiscal year 1996 restructuring activities were limited to the expenditure
of the previously anticipated cash outlays as estimated in the two prior fiscal
years. A summary of the Company's restructuring provisions and activities
against these provisions follows:
(in thousands) A B C D Total
----- ----- ----- ----- -------
April 30, 1993 accrual $198 $ 86 $ 0 $ 0 $ 284
FY94 Restructuring provisions 622 0 234 157 1,013
FY94 Cash expenditures 380 78 0 0 458
FY94 Non-cash/other 242 8 64 0 314
----- ----- ----- ----- -------
April 30, 1994 accrual $198 $ 0 $170 $157 $ 525
FY95 Restructuring provisions 516 0 0 0 516
FY95 Cash expenditures 338 0 0 0 338
FY95 Non-cash/other 44 0 170 157 371
----- ----- ----- ----- -------
April 30, 1995 accrual $332 $ 0 $ 0 $ 0 $ 332
FY96 Restructuring provisions 0 0 0 0 0
FY96 Cash expenditures 179 0 0 0 179
FY96 Non-cash/other 20 0 0 0 20
----- ----- ----- ----- -------
April 30, 1996 accrual $133 $ 0 $ 0 $ 0 $ 133
===== ===== ===== ===== =======
A - Warehouse space reduction (substantially all of which relates to lease
termination costs and PP&E write-downs)
B - Salaried headcount reduction (severance) and other employee costs
C - Discontinuance of frameless line
D - Manufacturing consolidation (PP&E write-downs)
Cash outlays after April 30, 1996 to complete the restructuring activities
are estimated at $133,000. The outlays are required to fund outstanding lease
commitments until fiscal 1997.
24
<PAGE>
Note J -- Commitments and Contingencies
Legal Matters
The Company is involved in various suits and claims in the normal course of
business. Included therein are claims against the Company pending before the
Equal Employment Opportunity Commission. Although management believes that such
claims are without merit and intends to vigorously contest them, the ultimate
outcome of these matters cannot be determined at this time. In the opinion of
management, after consultation with counsel, the ultimate liabilities and
losses, if any, that may result from suits and claims involving the Company will
not have a material adverse effect on the Company's results of operations or
financial position.
The Company is voluntarily participating with a group of companies which is
cleaning up a waste facility site at the direction of a state environmental
authority. The Company is also involved in other matters under the direction of
state environmental authorities.
The Company records liabilities for all probable and reasonably estimable
loss contingencies on an undiscounted basis. For loss contingencies related to
environmental matters, liabilities are based on the Company's proportional share
of the contamination obligation of a site since management believes it
"probable" that the other parties, which are financially solvent, will fulfill
their proportional contamination obligations. There are no probable insurance
or other indemnification receivables recorded. The Company has accrued for all
known environmental remediation costs which are probable and can be reasonably
estimated, and such amounts are not material. Due to factors such as the
continuing evolution of environmental laws and regulatory requirements,
technological changes, and the allocation of costs among potentially responsible
parties, estimation of future remediation costs is necessarily imprecise. It is
possible that the ultimate cost, which cannot be determined at this time, could
exceed the Company's recorded liability. As a result, charges to income for
environmental liabilities could have a material effect on results of operations
in a particular quarter or year as assessments and remediation efforts proceed.
However, management is not aware of any matters which would be expected to have
a material adverse effect on the Company's results of operations or financial
position.
Lease Agreements
The Company leases an office building, certain of its service centers and
equipment. Total rental expenses amounted to approximately $3,378,000,
$3,780,000, and $4,211,000 in fiscal 1996, 1995, and 1994, respectively.
Minimum rental commitments as of April 30, 1996, under noncancelable
leases are as follows:
(in thousands)
Fiscal Year Operating Capital
- ------------------- ---------- --------
1997 $ 1,668 $ 842
1998 1,020 581
1999 1,057 566
2000 927 551
2001 864 551
2002 and thereafter 548 3,303
---------- --------
$ 6,084 $ 6,394
==========
Less amounts representing interest 1,462
--------
Total obligation under capital leases $ 4,932
========
<PAGE>
Related Parties
During fiscal 1985, prior to becoming a publicly held corporation, the
Company entered into an agreement with a partnership formed by certain executive
officers of the Company to lease an office building constructed and owned by the
partnership. The initial lease term has five remaining years with two five-year
renewal periods available at the Company's option. Under this agreement, rental
expense was $370,000, $365,000, and $358,000 in fiscal 1996, 1995, and 1994,
respectively. Rent during the remaining base term of approximately $376,000
annually (included in the above table) is subject to adjustment based upon
changes in the Consumer Price Index.
Note K -- Other Information
Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. The Company's customers
operate in the construction and remodeling markets. At April 30, 1996, the
Company's two largest customers, Customer A and Customer B, represented 7.9% and
13.2% of the Company's customer receivables, respectively.
The following table summarizes the percentage of sales to the Company's two
largest customers for the last three fiscal years:
Percent of Annual Sales
------------------------
1996 1995 1994
------ ------ ------
Customer A 10.7 15.8 14.7
Customer B 17.5 14.2 13.0
The Company maintains an allowance for bad debt based upon management's
evaluation and judgment of potential net loss. The allowance is estimated based
upon historical experience, the effects of current developments and economic
conditions, and anticipation of customers' financial condition. Estimates and
assumptions are periodically reviewed and updated with any resulting adjustments
to the allowance reflected in current operating results.
25
<PAGE>
MANAGEMENT'S REPORT
The accompanying financial statements are the responsibility of and have
been prepared by the management of American Woodmark. The financial statements
have been prepared in accordance with generally accepted accounting principles
and necessarily include some amounts that are based on management's best
estimates and judgements. Financial information throughout this annual report
is consistent with the financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are properly recorded, that
policies and procedures are adhered to and that assets are adequately
safeguarded. The system of internal controls is supported by written policies
and guidelines, an organizational structure designed to ensure appropriate
segregation of responsibilities and selection and training of qualified
personnel.
To ensure that the system of internal controls operates effectively,
management and the internal audit staff review and monitor internal controls on
an ongoing basis. In addition, as part of the audit of the financial statements
the Company's independent auditors evaluate selected internal accounting
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be performed. The Company believes its
system of internal controls is adequate to accomplish the intended objectives,
and continues its efforts to further improve those controls.
The Audit Committee of the Board of Directors, which is composed entirely
of non-management Directors, oversees the financial reporting and internal
control functions. The Audit Committee meets periodically and separately with
Company management, the internal audit staff, and the independent auditors to
ensure these individuals are fulfilling their obligations and to discuss
auditing, internal control and financial reporting matters. The Audit Committee
reports its findings to the Board of Directors. The independent auditors and
the internal audit staff have unrestricted access to the Audit Committee.
/s/ BILL BRANDT
William F. Brandt, Jr.
Chairman & Chief Executive Officer
/s/ JAMES J. GOSA
James J. Gosa
President and Chief Operating Officer
/s/ KENT GUICHARD
Kent B. Guichard
Vice President, Finance and Chief Financial Officer
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
American Woodmark Corporation
We have audited the accompanying balance sheets of American Woodmark
Corporation as of April 30, 1996 and 1995, and the related statements of income
and retained earnings, and cash flows for each of the three years in the period
ended April 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Woodmark
Corporation at April 30, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended April 30, 1996,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
June 7, 1996
27
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
William F. Brandt, Jr.
Chairman and Chief Executive Officer
James J. Gosa
Director; President and Chief Operating Officer
David L. Blount
Vice President, Manufacturing
Kent B. Guichard
Vice President, Finance and
Chief Financial Officer
Donald P. Mathias
Director; Retired Vice President, Assembly and
Distribution
Daniel T. Carroll
Director; Chairman
The Carroll Group, Inc.
A Management Consulting Firm
Martha M. Dally
Director; Executive Vice President-Personal Products
Sara Lee Corporation
John T. Gerlach
Director; Director of MBA Program
Sacred Heart University
Richard A. Graber
Director; Retired Vice President, Marketing
American Woodmark Corporation
C. Anthony Wainwright
Director; Chairman
Harris, Drury, Cohen, Inc.
28
<PAGE>
CORPORATE INFORMATION
Annual Meeting
The annual meeting of the stockholders of American Woodmark Corporation will be
held on August 20, 1996, at 9:00 a.m. at Piper's at Creekside in Winchester,
Virginia.
Form 10-K Report
A copy of the Form 10-K for the year ended April 30, 1996, may be obtained by
writing to:
Kent Guichard
Vice President, Finance
American Woodmark Corporation
P.O. Box 1980
Winchester, VA 22604-8090
Corporate Headquarters
American Woodmark Corporation
3102 Shawnee Drive
Winchester, VA 22601-4208
(540) 665-9100
Mailing Address
P.O. Box 1980
Winchester, VA 22604-8090
Transfer Agent
ChaseMellon Shareholder Services, L.L.C.
800-851-9677
1996 American Woodmark Corporation(R)
American Woodmark(R) and Timberlake(TM) are trademarks of American Woodmark
Corporation.
Printed in U.S.A.
29
<PAGE>
APPENDIX TO EXHIBIT 13
Front cover Picture
Shows portion of a modern kitchen: "Designing Our Future"
Page 3 Picture
Shows James J. Gosa (President and Chief Operating Officer) and William F.
Brandt, Jr. (Chairman and Chief Executive Officer)
Page 6 Picture
Shows a family and sales representative at a home center showroom
Caption: "Home Centers will continue to be a growth market for many years.
Our strong relationships with the major home center chains will help us meet
our own growth objectives."
Page 7 Picture
Shows a new kitchen
Caption: "The Distributor and Builder Channels are a significant and growing
part of our sales base. Additional growth will be generated from penetrating
new markets and from innovative products and services for new home buyers and
remodelers."
Page 8 Two pictures
Each picture shows a portion of a production line
Caption: "Wood Finishing is at the heart of our production process. Finding
new applications for our expertise will provide growth opportunities in new
products and channels of distribution."
Page 9 Picture
Shows a kitchen cabinet being delivered
Caption: "Home Delivery of our products, virtually anywhere in the country,
helps distinguish our after-sale service from our competitors. Future
opportunities for growth are increased by the business partnerships that make
this service possible."
Page 10 Picture
Shows the Company symbol for the "2001 Vision"
Caption: CREATING VALUE THROUGH PEOPLE
Page 12 Graph
Graph of inventory turnover for last five fiscal years
Caption: INVENTORY TURNOVER
1992 1993 1994 1995 1996
5.3 7.0 8.5 11.0 11.9
Page 13 Graph
Graph of long-term debt for last five fiscal years
Caption: LONG-TERM DEBT AS A PERCENTAGE OF CAPITAL
1992 1993 1994 1995 1996
50.5% 47.0% 41.0% 32.8% 26.4%
<PAGE>
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Woodmark Corporation of our report dated June 7, 1996, included in
the April 30, 1996 Annual Report to Shareholders of American Woodmark
Corporation.
Our audits also included the financial statement schedule of American Woodmark
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ERNST & YOUNG LLP
Baltimore, Maryland
July 12, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<CASH> 7,201
<SECURITIES> 0
<RECEIVABLES> 21,215
<ALLOWANCES> 1,506
<INVENTORY> 10,326
<CURRENT-ASSETS> 38,662
<PP&E> 76,337
<DEPRECIATION> 43,149
<TOTAL-ASSETS> 76,336
<CURRENT-LIABILITIES> 23,253
<BONDS> 12,866
0
0
<COMMON> 17,677
<OTHER-SE> 18,168
<TOTAL-LIABILITY-AND-EQUITY> 76,336
<SALES> 196,237
<TOTAL-REVENUES> 196,237
<CGS> 153,982
<TOTAL-COSTS> 153,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 620
<INTEREST-EXPENSE> 1,209
<INCOME-PRETAX> 6,238
<INCOME-TAX> 2,392
<INCOME-CONTINUING> 3,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,846
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
